Korea should brace for a eurozone (EU)-triggered global economic slowdown that may develop into a full-blown recession, according to global experts, Sunday.
They said that if the eurozone downturn coincides with China's slowdown and trade confrontations between the U.S. and China, it will come as a perfect storm for the Korean economy.
They expect that chances of a global recession are growing and this time it could originate from the eurozone as the EU economy, including Germany, is reeling from multiple downside risks.
"The chances of a global recession are higher now than in any previous recent year," said Antonio Fatas, economics professor at INSEAD.
He said a global recession could start in Europe. "In Europe we have a slowdown in some economies and some large risks ― Brexit and Italy," he said.
But he sees risk everywhere, citing the U.S.' low unemployment rate.
"The risk is not only in Europe. The U.S. economy is coming to the end of a long expansion phase.
Typically once it reaches these low levels, it goes quickly into a recession," he said.
"And some financial markets look stretched, another signal that also precedes recessions. And China is slowing down ― it does not help."
Sohn Sung-won, a professor of economics at California State University-Channel Islands, voiced concerns about the Germany economy, which shrank in the third quarter and grew little in the final quarter of 2018.
"Germany, the economic engine of EU, is slowing down. There were some special factors such as the emissions test hurting the German economy," he said.
Germany's car industry, a key component of its export-related growth, struggled with new emissions standards in what is widely dubbed as the "Dieselgate" cheating scandal that has rocked the sector in recent years. Data from the German Association of the Automotive Industry (VDA) showed German car production fell 24 percent in September 2018 from the year before.
"In addition, the three most important export markets for Germany ― the U.S., China and U.K. ― are slowing as well," Sohn said. "The trade friction around China is not helping the situation."
The German economy grew only 1.5 percent in 2018, down from the previous year's 2.2 percent. On Jan. 24, the German government lowered its 2019 outlook to 1 percent from an earlier projection of 1.8 percent.
Debate over global recession has been initiated by global economic elites.
At a recent economic forum, IMF Managing Director Christine Lagarde warned of a "perfect storm," saying, "We see an economy that is growing more slowly than we had anticipated."
Forecasting a global recession in the coming years, U.S. economist and Nobel laureate Paul Krugman said recently, "The place that looks really close to recession right now is the euro area."
The European Commission (EC) said in its quarterly report that the GDP in the 19-member eurozone will grow by 1.3 percent in 2019, significantly lower than its 1.9 percent forecast in November.
The commission said it faces a "perfect storm" of weakening global trade and rising domestic risks led by a chaotic Brexit, the U.S.-China trade dispute and a sharper-than-expected slowdown in the Chinese economy.
Impact on Korean economy
Experts said that the marked economic slowdown in the eurozone will have a major adverse effect on Korean economy and its exports.
"The three largest export markets for Korea ― China, the U.S and Europe ― have shown softening. Its impact has already been significant and will continue to have an adverse impact," Sohn said.
While he does not expect an outright recession in both Korea and the EU, the situation bears vigilant monitoring amid elevated concern over Germany's economic slowdown compounded by the lingering risk of the U.S.-China trade dispute.
If a significant EU-triggered downturn materializes, Korea will not be immune, according to Katrina Ell, an economist at Moody's Analytics.
"Manufacturing and export sectors are important to Korea, indicating the country is heavily reliant on global demand. In addition, domestic demand is already underperforming so is unlikely to materially pick up the slack from weakness offshore."
The problem lies in the fact that central banks globally have less room to absorb weakness than in prior downturns, which is an additional worry to the risk of a disorderly Brexit that will have significant adverse ripple effects in Europe and further abroad.
"Global policy normalization has barely begun and heightened downside risks alongside the slowing global economy mean that central banks have generally been wary of hiking policy rates too aggressively. The Bank of Korea is no exception," she said.
A global recession will affect Korea, moreso if China is also impacted, according to Fatas.
"In 2008 and 2009, the Korean economy slowed down but not as much as Europe or the U.S. because China managed to survive that crisis," he said.
Such a sentiment is echoed by Park Chong-hoon, a chief economist at SC First Bank.
"Korea should be as much watchful of developments in China as it should of the eurozone, or perhaps more concerned about the possible slowdown in China, its major export partner," he said.
"Up to 45 percent of Korea's trade involves China and countries closely linked to it including Hong Kong, Singapore and Indonesia. It bears further monitoring on the economic and other developments from those countries that could impact Korea."